EX-99.(C)(7) 6 a06-19253_1ex99dc7.htm EX-99

Exhibit (c)(7)

 

The following exhibit has been edited solely to remove the actual names of the potential bidders.

 




















































 

Searchable text section of graphics shown above

 


 

PRELIMINARY
DRAFT

 

Presentation to the Special Committee of the Board of RRR

 

Goldman, Sachs & Co.

30-July-2005

 


 

Table of Contents

 

I.

Executive Summary

 

 

 

 

II.

Standalone Valuation

 

 

 

 

III.

Strategic Alternative Analysis

 

 

 

 

IV.

Pricing Analysis

 

 

 

 

V.

SL Green Stock Currency Overview

 

 

 

 

VI.

Management Participation Overview

 

 

 

 

Appendix A:  Current Proposals

 

 

 

Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.

 


 

[LOGO]

 

I.                                         Executive Summary

 

1


 

Executive Summary

 

•                  Goldman Sachs and Citigroup ran a competitive sale process starting on July 14, 2006 where eight credible bidders were invited to participate and the Company received indications from interest from two other bidders. Six bidders signed confidentiality agreements and five bidders aggressively conducted due diligence over a two week period

 

•                  Given the heightened bidder interest in New York City assets, we examined the strategic alternative of selling only New York City assets and One Court Square and analyzing how such a restructuring would impact RRR on a going forward basis

 

•                  SL Green initially proposed a bid $42.50 per RRR share / unit, which was subsequently raised to $43.50, with $1.0 billion of consideration comprised of stock and the remainder to be paid in cash

 

•                  Represents a 10.5% premium to RRR’s Wall Street average NAV(1) and a 15.7% premium to Management’s NAV of approximately $37.59 per share

 

•                  Represents a 2.6% discount to 7/28/06 stock price but reflects a 3.9% premium to the estimated undisturbed price of $41.68 on 7/12/06(2) and a 5.2% premium to the 30 day average price of $41.37, as of 7/28/06(3)

 

•                  Represents an implied cap rate on the entire portfolio of 5.2% (with no transaction costs) and 5.0% (with $300mm of assumed transaction costs(4)) based upon 2007E pro rata NOI(5)

 

•                  We examined SL Green stock as a deal currency and analyzed the impact of price fluctuation in SL Green stock between signing and closing on the consideration received by RRR shareholders

 

•                  Bidders informed the Company that they had challenges in valuing certain assets. In response, Goldman Sachs and the Company offered bidders potential acquisition options by Management for those certain assets

 

•                  We also examined the valuations that Management has placed on certain assets and how that compares to the RRR Net Asset Value. We performed a market check on those asset valuations to determine whether any other process participants would pay a higher valuation than the offer provided by SL Green

 

(1)       Source:  SNL Datasource and Green Street Advisors. Excludes Bank of America 7/28/06 updated NAV estimate on the basis that it may reflect significant merger take-out expectations

(2)       Source:  Factset. Assumes undisturbed price of $41.86 as of 7/12/06, the day before mention of a possible RRR acquisition on Kramer’s “Mad Money” program

(3)       Source:  Factset

(4)       Transaction costs estimates per Management, except debt defeasance costs, which are as per Goldman Sachs

(5)       Per Management

 

2


 

Comparison of Selected US Office REITs

Sorted by 2006E FFO Multiple

($ in millions, except per share data)

 

 

 

Closing

 

% of 52

 

 

 

Total

 

 

 

 

 

 

 

 

 

FFO

 

 

 

Price

 

Week

 

Dividend

 

Market

 

Enterprise

 

Net Debt +

 

FFO Multiples(1)

 

Growth

 

 

 

07/28/06

 

High

 

Yield

 

Cap

 

Value (EV)

 

Preferred / EV

 

2006E

 

2007E

 

‘06E-’07E

 

SL Green Realty

 

113.80

 

99.7

%

2.1

%

$

5,166

 

$

8,250

 

37.0

%

24.7 x

 

22.7 x

 

8.9

%

Boston Properties

 

97.91

 

100.0

 

2.8

 

13,155

 

18,217

 

27.8

 

23.3

 

22.2

 

4.6

 

Corporate Office Properties

 

44.80

 

97.8

 

2.5

 

2,183

 

3,783

 

42.3

 

21.9

 

19.4

 

12.7

 

Kilroy Realty Corp.

 

73.37

 

94.4

 

2.9

 

2,398

 

3,518

 

31.8

 

21.0

 

21.3

 

(1.4

)

Vornado

 

105.10

 

100.0

 

3.0

 

16,464

 

26,485

 

37.8

 

20.3

 

19.4

 

4.4

 

Cousins Properties

 

31.34

 

92.2

 

4.7

 

1,590

 

2,504

 

35.5

 

20.2

 

17.3

 

16.8

 

RRR

 

44.68

 

96.9

 

3.8

 

3,854

 

6,224

 

33.8

 

19.0

 

16.7

 

13.8

 

Alexandria Real Estate

 

95.10

 

98.0

 

2.9

 

2,167

 

3,915

 

44.1

 

18.4

 

16.9

 

9.1

 

Brookfield Realty

 

33.74

 

98.8

 

2.3

 

7,807

 

14,641

 

46.3

 

17.9

 

16.5

 

7.9

 

RRR (Undisturbed)(2)

 

41.86

 

90.8

 

4.1

 

3,611

 

5,980

 

35.2

 

17.8

 

15.6

 

13.8

 

Washington REIT

 

37.79

 

97.1

 

4.4

 

1,594

 

2,341

 

31.8

 

17.7

 

16.3

 

9.2

 

Equity Office Properties

 

38.17

 

100.0

 

3.5

 

15,589

 

31,435

 

46.0

 

17.2

 

16.2

 

5.9

 

Maguire Properties

 

37.95

 

100.0

 

4.2

 

2,038

 

4,971

 

59.0

 

17.0

 

15.2

 

11.9

 

Biomed Realty Trust Inc.

 

29.65

 

96.4

 

3.9

 

1,741

 

1,980

 

12.1

 

16.8

 

14.7

 

14.8

 

Crescent Real Estate Equities In

 

19.76

 

91.5

 

7.6

 

2,462

 

5,711

 

56.0

 

15.3

 

11.7

 

31.4

 

Liberty Property

 

46.92

 

95.8

 

5.2

 

4,332

 

6,747

 

35.8

 

14.9

 

14.3

 

4.4

 

Glenborough Realty Trust

 

22.42

 

98.7

 

4.9

 

787

 

1,664

 

52.7

 

14.0

 

13.2

 

6.2

 

Mack-Cali Realty

 

48.65

 

100.0

 

5.2

 

3,784

 

5,964

 

36.5

 

13.5

 

13.6

 

(1.0

)

Mission West

 

10.50

 

88.2

 

6.1

 

1,098

 

1,423

 

22.8

 

13.1

 

18.3

 

(28.1

)

Brandywine Realty

 

32.14

 

98.3

 

5.5

 

3,054

 

6,123

 

50.1

 

12.8

 

12.2

 

4.8

 

Parkway Properties

 

46.13

 

86.1

 

5.6

 

654

 

1,421

 

53.3

 

11.3

 

11.3

 

0.2

 

American Financial Realty Trust

 

11.84

 

80.2

 

9.1

 

1,574

 

4,563

 

65.5

 

8.9

 

11.3

 

(21.1

)

High

 

 

 

100.0

%

9.1

%

$

16,464

 

$

31,435

 

65.5

%

24.7 x

 

22.7 x

 

31.4

%

Mean

 

 

 

95.7

%

4.4

%

$

4,452

 

$

7,709

 

40.9

%

17.1 x

 

16.2 x

 

5.5

%

Median

 

 

 

97.8

%

4.2

%

$

2,398

 

$

4,971

 

37.8

%

17.2 x

 

16.3 x

 

6.2

%

Low

 

 

 

80.2

%

2.1

%

$

654

 

$

1,421

 

12.1

%

8.9 x

 

11.3 x

 

(28.1

)%

 

Source: Latest publicly available financial statements

(1)       All projected FFO estimates have been calendarized. FFO numbers based on IBES median estimates(including RRR)

(2)       Estimated undisturbed price as of July 12, 2006

 

3


 

RRR Price / Volume
Since 7/10/06

 

[CHART]

 

Source:  Factset

 

4


 

Total Stock Return

Since 7/10/06

 

[CHART]

 

Source:  Factset

Note:  Total returns include dividends. Comparable Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

5


 

Historical Forward FFO Multiples

Comparable Office REITs

 

[CHART]

 

(1)       Source : Factset, IBES Consensus estimates

 

6


 

II.                                     Standalone Valuation

 

7


 

Preliminary Valuation Overview

Summary

 

In conducting our preliminary valuation analysis, we utilized the following methodologies, based upon Management projections:

 

•                  Management Net Asset Value Analysis

 

•                  Wall Street Consensus Net Asset Value Analysis

 

•                  Trading FFO Multiples Analysis

 

•                  Three-Year Discounted Cash Flow Analysis

 

•                  Five-Year Discounted Cash Flow Analysis

 

8


 

Management NAV Analysis

Note:  Pro Forma for Sale of Tranche III to LPT

($ and SF in millions, except per share and per SF amounts)

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

Share of

 

Implied

 

 

 

 

 

 

 

 

 

Current

 

Pro Rata

 

Share of

 

Capitalized

 

Cap

 

 

 

 

 

State

 

Asset Pool

 

Ownership

 

Sq. Ft.

 

2007E NOI (1)

 

NOI (1)(2)

 

Rate (1)

 

Value PSF

 

Value

 

Connecticut

 

Strategic

 

87.6

%

1.1

 

$

18.6

 

$

18.8

 

6.25

%

$

271.1

 

$

300.2

 

 

 

A-LPT

 

25.0

 

0.2

 

2.1

 

2.5

 

8.27

 

180.3

 

30.7

 

Long Island

 

Strategic

 

90.2

 

2.9

 

45.3

 

43.8

 

6.64

 

230.9

 

660.2

 

 

 

Core Plus

 

100.0

 

0.7

 

9.8

 

10.7

 

7.40

 

201.2

 

144.1

 

 

 

A-LPT

 

25.0

 

0.3

 

4.6

 

4.2

 

6.62

 

196.2

 

63.2

 

New Jersey

 

Strategic

 

88.3

 

0.9

 

20.6

 

22.7

 

6.11

 

396.6

 

371.2

 

 

 

Core Plus

 

100.0

 

1.4

 

16.9

 

16.8

 

6.75

 

175.8

 

248.4

 

 

 

A-LPT

 

25.0

 

0.1

 

1.9

 

1.9

 

7.84

 

180.8

 

23.7

 

New York

 

 

 

69.9

 

3.8

 

102.4

 

105.8

 

5.33

 

517.5

 

1,986.5

 

Westchester

 

Strategic

 

100.0

 

1.8

 

28.9

 

30.8

 

6.29

 

271.6

 

490.1

 

 

 

Core Plus

 

94.7

 

1.8

 

23.2

 

28.2

 

6.43

 

238.9

 

439.1

 

 

 

A-LPT

 

25.0

 

0.2

 

3.1

 

3.1

 

8.25

 

179.0

 

37.1

 

GROSS REAL ESTATE VALUE

 

 

 

76.0

%

15.3

 

$

277.3

 

$

289.2

 

6.03

%

$

312.5

 

$

4,794.4

 

Development Properties (3), (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

198.3

 

Investments in RSVP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55.2

 

Investment in JVs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.0

 

Investments in Notes Receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

169.0

 

Cash and Cash Equivalents (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52.7

 

Other Assets(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75.3

 

Value of Australia LPT Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.0

 

Total Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566.5

 

GROSS ASSET VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,360.9

 

Pro Rata Consolidated Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,729.4

 

Unconsol. JV Debt (pro rata share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181.5

 

Preferred Stock (@ liquidation)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.2

 

Other Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

185.0

 

TOTAL LIABILITIES (7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,097.1

 

NET ASSET VALUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,263.8

 

Diluted Shares and Units Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86.8

 

NET ASSET VALUE PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37.59

 

 

9


 

Footnotes

 

Note: Reflects Tranche III assets at 25% ownership interest and TIAA JV assets at current ownership interest (51%)

 

(1)       Per Management estimates

 

(2)       Represents NOI for year in which property achieves stabilization, per Management estimates

 

(3)       Assumes a multiple of 1.25x cost, except for Giralda Farms - Chatham, which is valued at 2.00x cost

 

(4)       Represents the NPV of the 3 active development properties (7 Landmark Square, University Square and 103 Corporate Drive) at a discount rate of 15.0% per Management estimates. Reckson Executive Park 7, 4 Giralda Farms - Madison and 11 Giralda Farms - Chatham are valued at $60.00 PSF per Management estimates

 

(5)       3/31/06 cash balance adjusted for the sale of 75% interest in Tranche III assets to AUS LPT for net proceeds of $36.2mm, net cash outflows of $18.4mm related to development projects during the remainder of 2006 and $7.8 mm of other estimated transaction related disbursements

 

(6)       Reflects reduction in other assets of $88.0mm related to cash used to reduce the line of credit balance at 3/31/06 from $180.0mm to $92.0mm. Other assets is also reduced by non cash items totaling $46.0mm per Management estimates

 

(7)       Includes pro rata share of consolidated and unconsolidated mortgage debt, unsecured debt, convertible debentures, and line of credit totaling $1,910.9 mm. Also includes preferred stock of $1.2mm and Other Liabilities consisting of accrued expenses, deferred revenue and dividends payable totaling $185.0mm

 

10


 

Summary of Research Analysts’ Ratings

 

 

 

 

 

NAV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium / (Discount) to

 

Target

 

2006E

 

2007E

 

 

 

Bank

 

Stock Rating

 

Estimate

 

NAV

 

Share Price

 

FFO

 

FFO

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Green Street Advisors

 

Sell

 

$

40.00

 

11.7

%

$

39.65

 

$

2.52

 

$

2.73

 

7/19/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deutsche Bank Securities

 

Buy

 

—

 

—

 

46.00

 

2.40

 

2.70

 

7/26/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banc of America Securities

 

Buy

 

47.48

 

-5.9

%

45.00

 

2.37

 

2.64

 

7/28/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets

 

Buy

 

40.00

 

11.7

%

42.00

 

2.37

 

2.71

 

7/27/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J.P. Morgan Securities Inc.

 

Buy

 

—

 

—

 

—

 

2.35

 

2.62

 

7/24/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goldman, Sachs & Co.

 

Hold

 

—

 

—

 

—

 

2.34

 

2.72

 

5/5/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merrill Lynch & Co.

 

Hold

 

38.00

 

17.6

%

—

 

2.27

 

2.70

 

5/4/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Investment Research

 

Sell

 

39.99

 

11.7

%

—

 

2.25

 

2.60

 

7/24/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stifel Nicolaus & Co.

 

Buy

 

38.76

 

15.3

%

—

 

2.24

 

2.64

 

6/12/06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average / Consensus

 

 

 

$

40.71

 

9.8

%

$

43.16

 

$

2.35

 

$

2.67

 

 

 

Average / Consensus excluding Bank of America estimates

 

 

 

$

39.35

 

13.5

%

$

42.55

 

$

2.34

 

$

2.68

 

 

 

 

Source: As per SNL DataSource as per 7/28/06 and Green Street Advisors. Bank of America is excluded from the second mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

 

11


 

Management’s Financial Projections

Funds from Operations & Dividends

 

 

 

2006

 

2007

 

2008

 

2009

 

FFO Per Share

 

$

2.37

 

$

2.61

 

$

2.75

 

$

2.97

 

% Growth

 

—

 

10.1

%

5.4

%

8.0

%

Dividend Per Share

 

$

1.70

 

$

1.70

 

$

1.77

 

$

1.84

 

% Growth

 

—

 

0.0

%

4.0

%

4.0

%

 

Sourc:  Mangement

 

12


 

Trading FFO Multiple Sensitivity

Based Upon Management Projections – Values Not Discounted to Present

 

 

 

FFO / Share(1)

 

Multiple of FFO / Share

 

2006E

 

2007E

 

2008E

 

2009E

 

2010E

 

2011E

 

 

 

$

2.37

 

$

2.61

 

$

2.75

 

$

2.97

 

$

3.12

 

$

3.27

 

12.0 x

 

28.44

 

31.32

 

33.00

 

35.64

 

37.42

 

39.29

 

13.0 x

 

30.81

 

33.93

 

35.75

 

38.61

 

40.54

 

42.57

 

14.0 x

 

33.18

 

36.54

 

38.50

 

41.58

 

43.66

 

45.84

 

15.0 x

 

35.55

 

39.15

 

41.25

 

44.55

 

46.78

 

49.12

 

16.0 x

 

37.92

 

41.76

 

44.00

 

47.52

 

49.90

 

52.39

 

17.0 x

 

40.29

 

44.37

 

46.75

 

50.49

 

53.01

 

55.67

 

 

•                  RRR has historically traded at an average multiple of 13.0x over the prior three year period(2)

 

•                  RRR trades at an undisturbed multiple of 17.8x 2006E FFO and 15.6x 2007E FFO(3)

 

•                  Comparable east coast Office REIT’s(4) have historically traded at an 11.5x forward multiple over the prior five year period

 

•                  The current median US Office REIT 2006E FFO multiple is 17.2x and 2007E FFO multiple is 16.3x(5)

 

(1)       Source:  FFO projections through 2009 as per Company management (excludes LTIP Special Out-performance Award). For 2010 and 2011, FFO has been grown at an assumed 5.0%, per Management

(2)       Based upon historical 3 year average multiple over the period Q2 2003 to Q2 2006

(3)       Estimated undisturbed price as of July 12, 2006

(4)       Comparable east coast Office REITs include SLG, OFC, RA, EOP, CLI, VNO & BDN. Historical pricing per Factset

(5)       Source: Factset

 

13


 

Discounted Cash Flow Analysis

3-Year – Based Upon Management Projections

 

Three-Year Discounted Cash Flow to Investors

 

2007

 

2008

 

2009

 

Projected Dividends / Share(1)

 

$

1.70

 

$

1.77

 

$

1.84

 

2009E FFO / Share(2)

 

 

 

 

 

2.97

 

Residual Implied Per Share Value at Reckson’s Undisturbed 2007E Multiple (15.6x)(3)

 

 

 

 

 

46.33

 

Present Implied Per Share Value @ 9% discount rate

 

$

1.56

 

$

1.49

 

$

37.20

 

Implied Value Per Share(4)

 

$

40.24

 

 

 

 

 

 

 

 

Discount Rate

 

Multiple of 2009E FFO / Share

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.0 x

 

$

33.72

 

$

32.84

 

$

31.99

 

$

31.16

 

$

30.37

 

13.0 x

 

36.15

 

35.20

 

34.28

 

33.39

 

32.54

 

14.0 x

 

38.57

 

37.56

 

36.57

 

35.63

 

34.71

 

15.0 x

 

41.00

 

39.91

 

38.87

 

37.86

 

36.88

 

16.0 x

 

43.42

 

42.27

 

41.16

 

40.09

 

39.06

 

17.0 x

 

45.85

 

44.63

 

43.45

 

42.32

 

41.23

 

 

(1)       Source:  Management. Assumes a 4.0% dividend growth rate per year, starting in 2008 (per Management)

(2)       Source:  Management. Excludes recognition of LTIP Special Out-performance Award

(3)       Estimated undisturbed price as of July 12, 2006

(4)       Assumes discounting using a 9.0% discount rate per Management and based upon precedent transactions. Model discounts to 12/31/06

 

14


 

Discounted Cash Flow Analysis

5-Year – Based Upon Management Projections

 

Five-Year Discounted Cash Flow to Investors

 

2007

 

2008

 

2009

 

2010

 

2011

 

Projected Dividends / Share(1)

 

$

1.70

 

$

1.77

 

$

1.84

 

$

1.91

 

$

1.99

 

2011E FFO / Share(2)

 

 

 

 

 

 

 

 

 

3.27

 

Residual Implied Per Share Value at Reckson’s Undisturbed 2007E Multiple (15.6x)(3)

 

 

 

 

 

 

 

 

 

51.08

 

Present Implied Per Share Value @ 9% discount rate

 

$

1.56

 

$

1.49

 

$

1.42

 

$

1.35

 

$

34.49

 

Implied Value Per Share(4)

 

$

40.31

 

 

 

 

 

 

 

 

 

 

 

 

Discount Rate

 

Multiple of 2011E FFO / Share

 

7.0%

 

8.0%

 

9.0%

 

10.0%

 

11.0%

 

12.0 x

 

$

35.52

 

$

34.05

 

$

32.65

 

$

31.32

 

$

30.07

 

13.0 x

 

37.86

 

36.28

 

34.78

 

33.36

 

32.01

 

14.0 x

 

40.19

 

38.50

 

36.91

 

35.39

 

33.95

 

15.0 x

 

42.53

 

40.73

 

39.03

 

37.42

 

35.90

 

16.0 x

 

44.86

 

42.96

 

41.16

 

39.46

 

37.84

 

17.0 x

 

47.20

 

45.19

 

43.29

 

41.49

 

39.78

 

 

(1)       Source:  Management. Assumes a 4.0% dividend growth rate per year, starting in 2008 (per Management)

(2)       Source:  Company management. Excludes recognition of LTIP Special Out-performance Award. FFO projections beyond 2009 estimated by applying a 5.0% growth, per Management

(3)       Undisturbed price as of July 12, 2006

(4)       Assumes discounting using a 9.0% discount rate per Management and based upon precedent transactions. Model discounts to 12/31/06

 

15


 

Historical Stock Trading Information

RRR

 

[CHART]

 

Source:  Factset. Estimated undisturbed price as of 7/12/06

 

16


 

Shares Traded at Various Prices

 

 

 

RRR Stock Price – March 29, 2006

RRR Stock Price – One Year

 

(52 Week High) to Current

 

 

 

[CHART]

 

[CHART]

 

Source: Factset

 

17


 

III.                                 Strategic Alternative Analysis

 

18


 

Executive Summary

 

We have been asked to analyze the impact on shareholder value of restructuring RRR by selling New York City and One Court assets with the Company emerging as a suburban-focused company

 

•                       Execution of portfolio repositioning involves the following steps

 

•                       Liquidate all New York City and One Court assets

 

•                       Reinvest proceeds in three potential uses

 

•                      Capital redeployment in tri-state suburban office market

 

•                      Special dividend

 

•                      Share repurchase

 

•                       Manage headcount to bring G&A in line with reduced footprint

 

•                       Benefits of creating a suburban-focused company include

 

•                       Monetizes midtown Manhattan office assets at historically low cap rates, which are driven by significant market demand and supply constraints

 

•                       Preserves RRR as a going concern and may preserve potential upside for shareholders

 

•                       Provides substantial capital to re-deploy or return to shareholders

 

19


 

Issues to Consider

 

•                  Total value loss from selling costs(1)

 

•                  Value loss to shareholders due to the potential triggering of capital gain taxes at the shareholder level(2)

 

•                  Corporate morale and employee efficiency could be impacted

 

•                  Challenges in retaining and attracting talented people

 

•                  Feasibility of re-investing proceeds into quality assets in the tri-state suburban office market

 

•                  Potential dilutive impact on earnings

 

•                  Friction costs

 

•                  Potential time lag between realizing proceeds and reinvestment (additional cap rate risk)

 

•                  Market perception of NewCo

 

•                  Risk of FFO multiple compression with the shift to a suburban-focused strategy

 

•                  Significant fixed costs associated with public company reporting and legal requirement

 

(1)       As per Goldman Sachs estimates:  1.0% selling costs for New York City Assets. Assumes payment of transfer taxes by buyer (approx 3.0% of sale price)

(2)       Approx. $250.0mm to $280.0mm of capital gains taxes may be triggered based upon a tax basis in NYC/One Court of $1.1 bn (per Company) and assumes a blended 20.0% capital gains tax rate (15.0% federal and blended 5.0% state)

 

20


 

Geographical Distribution

 

($ and SF in millions)

 

Current Geographic Mix (By Value)(1)

 

[CHART]

 

Total Estimated Value: $5.0 - $5.5 billion

 

NewCo: Suburban Markets

 

Total Pro Rata Sq. Feet

11.5 mm

 

 

 

 

Estimated Market Value(2)

Approximately $2,700

 

 

 

 

% of Total Value(2)

49.9%

 

 

 

 

% of Pro Rata 2007E NOI(3)

60.7%

 

 

 

 

Implied 2007E Cap Rate(3)

Approximately 6.4%

 

 

 

 

Implied Value per Pro Rata SF(2)

Approximately $235

 

 

Source:  Management estimates

(1)       Based upon Management estimates

(2)       Based off of indications of value from bidders and Management

(3)       Based upon Management estimates

 

21


 

Restructuring Cost Overview

Transaction Costs to Sell New York City / One Court

 

 

Gross Asset Value (NYC & One Court)
$2.4 billion - $2.6 billion

 

 

LESS:

Asset Sale Transaction Costs (1.0%)(1)
$25 million - $26 million

 

 

LESS:

Shareholder Tax Costs (Assumes no 1031 Exchanges)(1)
$250 million - $280 million

 

 

Restructuring Costs: $275 million – $305 million

Approx. $3.15 to $3.50 per share

 

(1)       Asset Sale costs of 1.0% of gross real estate value are as per Goldman Sachs estimates. Assumes buyer’s payment of real estate transfer taxes. Estimated tax costs based upon approximate tax basis of $1.1bn in New York City and One Court (per Company) and a blended capital gains rate of 20% (15% federal income tax rate and 5% blended state rate)

 

22


 

NewCo:  Comparable Companies

Suburban versus New York Assets

($ in millions)

 

 

 

Closing

 

% of 52

 

 

 

 

 

 

 

 

 

 

 

FFO

 

 

 

Price

 

Week

 

Dividend

 

Enterprise

 

Net Debt +

 

FFO Multiples(1)

 

Growth

 

 

 

07/28/06

 

High

 

Yield

 

Value (EV)

 

Preferred / EV

 

2006E

 

2007E

 

‘06E-’07E

 

New York Comparables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SL Green Realty

 

$

113.80

 

99.7

%

2.1

%

$

8,250

 

37.0

%

24.7

x 

22.7

x

8.9

%

Boston Properties

 

97.91

 

100.0

 

2.8

 

18,217

 

27.8

 

23.3

 

22.2

 

4.6

 

Vornado

 

105.10

 

100.0

 

3.0

 

26,485

 

37.8

 

20.3

 

19.4

 

4.4

 

Brookfield Realty

 

33.74

 

98.8

 

2.3

 

14,641

 

46.3

 

17.9

 

16.5

 

7.9

 

Equity Office Properties

 

38.17

 

100.0

 

3.5

 

31,435

 

46.0

 

17.2

 

16.2

 

5.9

 

High

 

 

 

100.0

%

3.5

%

$

31,435

 

46.3

%

24.7

x 

22.7

x

8.9

%

Mean

 

 

 

99.7

%

2.7

%

$

19,806

 

39.0

%

20.7

x

19.4

x

6.4

%

Median

 

 

 

100.0

%

2.8

%

$

18,217

 

37.8

%

20.3

x

19.4

x

5.9

%

Low

 

 

 

98.8

%

2.1

%

$

8,250

 

27.8

%

17.2

x

16.2

x

4.4

%

Suburban Comparables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Office Properties

 

$

44.80

 

97.8

%

2.5

%

$

3,783

 

42.3

%

21.9

x

19.4

x

12.7

%

Liberty Property

 

46.92

 

95.8

 

5.2

 

6,747

 

35.8

 

14.9

 

14.3

 

4.4

 

Glenborough Realty Trust

 

22.42

 

98.7

 

4.9

 

1,664

 

52.7

 

14.0

 

13.2

 

6.2

 

Mack-Cali Realty

 

48.65

 

100.0

 

5.2

 

5,964

 

36.5

 

13.5

 

13.6

 

(1.0

)

Mission West

 

10.50

 

88.2

 

6.1

 

1,423

 

22.8

 

13.1

 

18.3

 

(28.1

)

Brandywine Realty

 

32.14

 

98.3

 

5.5

 

6,123

 

50.1

 

12.8

 

12.2

 

4.8

 

Parkway Properties

 

46.13

 

86.1

 

5.6

 

1,421

 

53.3

 

11.3

 

11.3

 

0.2

 

High

 

 

 

100.0

%

6.1

%

$

6,747

 

53.3

%

21.9

x

19.4

x

12.7

%

Mean

 

 

 

95.0

%

5.0

%

$

3,875

 

41.9

%

14.5

x

14.6

x

(0.1

)%

Median

 

 

 

97.8

%

5.2

%

$

3,783

 

42.3

%

13.5

x

13.6

x

4.4

%

Low

 

 

 

86.1

%

2.5

%

$

1,421

 

22.8

%

11.3

x

11.3

x

(28.1

)%

 

Source: Latest publicly available financial statements

(1)       All projected FFO estimates have been calendarized. FFO numbers based on IBES median estimates

 

23


 

Use of Proceeds

 

Net Sale Proceeds

 

Redeployment of Capital in Suburban Assets

 

•                  Difficult to deploy significant capital into high-quality suburban office assets in short time period (i.e. 1031 rules)

•                  Historically low cap rate environment

•                  Additional transaction costs in acquiring new assets

 

Share Buyback

 

•                  Taxable to RRR shareholder who sell shares in a buyback

•                  Historical liquidity in stock will make acquiring a significant number of shares challenging

•                  REIT tax rules can make significant share buybacks impractical

 

Special Dividend

 

•                  Taxable event for all RRR shareholders

 

24


 

Conclusion

 

Restructuring RRR to emerge as a tri-state-focused suburban office REIT would significantly alter the perception of the company and would involve significant transaction costs. In addition, the following benefits and issues should be considered:

 

Benefits

 

Issues

 

 

 

•                  Liquidation of New York City & One Court assets at historically low cap rates

•                  Preserves the Company and minimizes disruption to other aspects of RRR platform:

•                  Australian LPT

•                  Development partners

•                  Tenants

•                  Potentially less employee headcount reduction than a take-private or sale to a public company

•                  Provides substantial capital to re-deploy or return to shareholders

 

•                  Friction Costs

•                  Challenges of deploying sale proceeds in a tax and returns-efficient manner

•                  Feasibility of redeploying proceeds into high quality tri-state suburban assets in a short period of time

•                  Additional cap rate risk during redeployment period

•                  Pro forma leverage levels

•                  Corporate morale and employee efficiency may suffer as a result of layoffs

•                  Difficulty in retaining and attracting talented employees as pro forma company would likely have a smaller footprint

•                  Potentially higher borrowing costs (potential downgrade by rating agencies due to reduced sized and decreased geographic and tenant diversity)

 

25


 

IV.                                Pricing Analysis

 

26


 

Pricing Analysis

Summary

 

In addition to the standalone value analysis, the Committee should also consider the following to understand at what price a potential buyer would consider paying for the Company:

 

•                  Premium Analysis

 

•                  Implied Cap Rate by Market Analysis

 

•                  Comparable Transactions Analysis

 

•                  Other Comparable Negative Premium Situations

 

27


 

Transaction Premium Analysis

 

 

 

 

 

Proposed

 

 

 

Proposed

 

 

 

Current

 

Transaction

 

Undisturbed

 

Transaction

 

 

 

(7/28/06)(1)

 

$43.50

 

(7/12/06)(2)

 

$43.50

 

Stock Price

 

$

44.68

 

-2.6

%

$

41.86

 

3.9

%

30-Day Average

 

41.37

 

5.2

%

39.95

 

8.9

%

90-Day Average

 

40.98

 

6.2

%

41.15

 

5.7

%

180-Day Average

 

40.07

 

8.6

%

39.55

 

10.0

%

One-Year Average

 

38.11

 

14.2

%

37.68

 

15.4

%

 

 

 

 

 

 

 

 

 

 

Street Average NAV(3)

 

$

40.71

 

6.9

%

$

39.00

 

11.5

%

Street Average NAV(3) excluding Bank of America estimates

 

39.35

 

10.5

%

38.94

 

11.7

%

Green Street NAV

 

40.00

 

8.7

%

39.00

 

11.5

%

 

 

 

 

 

 

 

 

 

 

RRR Management NAV

 

$

37.59

 

15.7

%

$

37.59

 

15.7

%

 

 

 

 

 

 

 

 

 

 

RRR 2007E FFO Multiple(4)

 

17.1

x

16.7

x

16.0

x

16.7

x

Mean 2007E FFO Multiple (Office REIT Index)(5)

 

17.1

x

 

 

15.6

x

 

 

 

(1)       Based on closing price of $44.68 as of July 28, 2006

(2)       Assumes undisturbed date as of July 12, 2006 - $41.86 per share

(3)       Street NAV as of July 7, 2006

(4)       Based on management estimate for 2007 FFO / share of $2.61

(5)       Mean 2007E undisturbed FFO multiple as of July 7, 2006

 

28


 

Estimated Transaction Pricing Metrics

Assumes $43.50 per RRR Share

($ and SF in millions)

 

 

 

 

 

 

 

 

 

Estimatd Real Estate Value

 

 

 

2007E Cap Rate

 

2008E Cap Rate

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

PSF with

 

 

 

 

 

 

 

 

 

 

 

Pro Rata

 

Pro Rata

 

Pro Rata

 

RE Value

 

Transaction

 

Adjusted

 

Trans.

 

 

 

 

 

 

 

 

 

Location

 

Sq. Ft.(1)

 

2007E NOI (1)

 

2008E NOI (1)

 

Pre Costs

 

Costs(2)

 

RE Value

 

Cost

 

No Trans

 

W Trans.

 

No Trans

 

W Trans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut(3)

 

1.11

 

$

16.5

 

$

18.8

 

$

300.0

 

$

15.6

 

$

315.6

 

$

285.0

 

5.49

%

5.22

%

6.28

%

5.97

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island(4)

 

3.58

 

52.8

 

56.5

 

870.0

 

45.2

 

915.2

 

256.0

 

6.07

 

5.77

 

6.49

 

6.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York City (exclusive of One Court Square)

 

3.42

 

98.1

 

115.3

 

2,350.0

 

122.1

 

2,472.1

 

723.3

 

4.18

 

3.97

 

4.91

 

4.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Court Square(5)

 

0.42

 

9.2

 

9.3

 

180.0

 

9.4

 

189.4

 

450.3

 

5.10

 

4.85

 

5.15

 

4.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey(4)

 

2.35

 

34.8

 

44.2

 

570.0

 

29.6

 

599.6

 

255.3

 

6.11

 

5.80

 

7.76

 

7.38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge(4)

 

1.44

 

15.5

 

22.7

 

265.0

 

13.8

 

278.8

 

193.5

 

5.86

 

5.57

 

8.56

 

8.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Westchester (Less Eastridge)(3)

 

2.20

 

35.1

 

39.5

 

520.9

 

27.1

 

548.0

 

248.9

 

6.73

 

6.40

 

7.58

 

7.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RA AU-LPT(4)

 

0.82

 

10.9

 

11.8

 

153.2

 

8.0

 

161.1

 

195.4

 

7.13

 

6.77

 

7.73

 

7.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total and Weighted Average

 

15.34

 

$

272.9

 

$

318.2

 

$

5,209.1

 

$

270.7

 

$

5,479.7

 

$

357.3

 

5.24

%

4.98

%

6.11

%

5.81

%

Other Assets per Management NAV(6)

 

 

 

 

 

 

 

$

566.5

 

$

29.4

 

$

595.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Asset Value

 

 

 

 

 

 

 

$

5,775.6

 

$

300.1

 

$

6,075.7

 

 

 

 

 

 

 

 

 

 

 

 

Note: Reflects Tranche III assets at 25% ownership interest and TIAA JV assets at 51.0% ownership

(1)       Per Management estimates

(2)       Estimated Transaction Costs as per Management, except debt defeasance costs which are as per Goldman Sachs estimates

(3)       RE value in Connecticut per Goldman Sachs estimates based upon indications of value from bidders. Westchester (Less Eastridge) allocated pro rata based on implied RE value at $43.50 per share and indications of value on all other segments

(4)       Per Management’s proposed valuation

(5)       New York City and One Court value based off of indications of value from bidders

(6)       Please refer to Management NAV and detailed footnotes on value of other assets

 

29


 

Recent REIT Transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMLI

 

 

 

 

 

 

 

Pan Pacific

 

 

 

 

 

 

 

Bedford

 

 

 

Town &

 

Centerpoint

 

Residential

 

 

 

 

 

Bid at

 

Retail

 

Heritage

 

Trizec

 

CarrAmerica

 

Property

 

 

 

Country

 

Properties

 

Properties

 

CRT

 

 

 

$43.50

 

Properties

 

Properties

 

Properties

 

Realty

 

Investors

 

Arden Realty

 

Trust(1)

 

Trust

 

Trust

 

Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Announcement Date

 

 

 

7/10/2006

 

7/10/2006

 

6/5/2006

 

3/6/2006

 

2/10/2006

 

12/22/2005

 

12/19/2005

 

12/7/2005

 

10/24/2005

 

6/17/2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium on Announcement(2)

 

-2.6

%

0.0

%

3.3

%

17.9

%

8.9

%

10.5

%

-3.7

%

35.1

%

9.6

%

20.7

%

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 30-day Average(2)

 

5.2

%

3.7

%

7.2

%

21.1

%

17.3

%

18.2

%

-1.3

%

35.1

%

10.0

%

19.9

%

19.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 90-day Average(2)

 

6.2

%

4.6

%

0.3

%

19.3

%

25.3

%

19.0

%

7.9

%

40.1

%

15.3

%

20.1

%

22.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to 52-Week High(2)

 

-6.2

%

-5.1

%

-10.2

%

10.1

%

7.9

%

9.9

%

-4.0

%

31.4

%

0.1

%

13.0

%

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Street Average NAV(3)

 

6.9

%

-1.2

%

-7.9

%

12.7

%

17.4

%

27.1

%

17.0

%

33.8

%

42.4

%

2.0

%

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Street Average NAV (Excluding 7/28/06 BOA Report)(3)

 

10.5

%

-1.2

%

-7.9

%

12.7

%

17.4

%

27.1

%

17.0

%

33.8

%

42.4

%

2.0

%

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium to Green Street NAV(4)

 

8.7

%

3.6

%

-6.8

%

7.4

%

11.2

%

NA

 

10.4

%

24.7

%

57.2

%

2.0

%

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied Forward FFO Multiple(5)

 

18.4 x

 

17.5 x

 

13.3 x

 

17.7 x

 

17.0 x

 

17.3 x

 

17.7 x

 

21.0 x

 

17.9 x

 

17.9 x

 

13.6 x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied Nominal Cap Rate(6)

 

5.2

%

NA

 

NA

 

5.6

%

6.2

%

6.4

%

6.0

%

NA

 

NM

 

6.0

%

7.8

%

 

(1)       Town and Country premiums based on final purchase price

(2)       Source: FactSet. RRR data based on closing prices on July 28, 2006

(3)       Source: SNL DataSource & Green Street Advisors as of 7/28/06. Bank of America is excluded from the second NAV mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

(4)       Per Green Street Advisors research reports

(5)       Based on IBES median forward FFO estimates at the time of announcement, except RRR 2006E FFO which is as per Management

(6)       As per Green Street Research Report, except Bid at $43.50, which is based upon Management 2007E NOI estimate

 

30


 

Comparable Office REIT Transactions

 

 

 

RRR

 

Trizec

 

CarrAmerica

 

Arden

Announcement Date

 

TBD

 

6/5/06

 

3/6/06

 

12/22/05

Markets(1)

 

NYC: 49%

Long Island: 17%

Westchester:15%

New Jersey: 11%

Connecticut: 6%

Other: 2%

 

New York: 18%

Los Angeles: 14%

Washington D.C.: 13%

Other: 55%

 

Washington D.C.:23%

Northern California: 23%

Southern California: 15%

Other: 39%

 

Southern California: 100%

Implied Cap Rate

 

5.2%

 

5.6%

 

6.2%

 

6.0%

Price PSF(2)

 

$340

 

$251

 

NA

 

$255

Consideration

 

25% Stock / 75% Cash

 

100% Cash

 

100% Cash

 

100%

Buyer

 

TBD

 

Brookfield / Blackstone

 

Blackstone

 

GECC

 

(1)       RRR market distribution based on pro rata share of value. Trizec, CarrAmerica and Arden market distributions based off of pro rata share of SF

(2)       Per Green Street Advisors. RRR price PSF per management NAV and represents PSF without allocation of estimated transaction expenses

 

31


 

Negative Premium on Announcement Transactions(1)

US Targets with Transaction Value Greater Than $1.0 bn

 

 

 

 

 

 

 

 

 

 

 

Closing Price

 

 

 

 

 

 

 

 

 

 

 

Acquisition

 

One Day Prior

 

 

 

Date

 

 

 

 

 

Transaction

 

Price Per

 

to

 

 

 

Announced

 

Target Name

 

Acquiror Name

 

Value ($mm)

 

Share

 

Announcement

 

Discount

 

7/16/2001

 

Expedia Inc

 

USA Networks Inc

 

$

1,372.0

 

$

39.54

 

$

48.70

 

(18.8

)%

7/13/2004

 

National Processing Inc

 

Bank of America Corp

 

1,135.9

 

26.60

 

29.40

 

(9.5

)

10/4/2002

 

JDN Realty Corp

 

Developers Diversified Realty

 

1,041.8

 

11.11

 

12.13

 

(8.4

)

1/29/2001

 

Dallas-Semiconductor Corp

 

Maxim Integrated Products Inc.

 

1,368.1

 

24.88

 

26.81

 

(7.2

)

10/3/2005

 

Dex Media Inc.

 

RH Donnelley Corp.

 

9,669.7

 

27.58

 

28.90

 

(4.6

)

5/4/2004

 

Evergreen Resources Inc.

 

Pioneer Natural Resources Co.

 

2,043.1

 

39.00

 

40.63

 

(4.0

)

12/22/2005

 

Arden Realty Inc.

 

GE Capital Real Estate

 

4,633.9

 

45.25

 

46.99

 

(3.7

)

4/1/2002

 

Trendwest Resorts

 

Cendant Corp

 

1,008.2

 

23.34

 

24.02

 

(2.8

)

6/27/2003

 

Roslyn Bancorp Inc.

 

New York Community Bancorp

 

1,614.4

 

20.33

 

20.85

 

(2.5

)

1/23/2004

 

Union Planters Corp.

 

Regions Financial Corp.

 

5,846.1

 

30.58

 

31.36

 

(2.5

)

5/25/2006

 

AmSouth Bancorp

 

Regions Financial Corp.

 

10,020.8

 

28.33

 

28.90

 

(2.0

)

11/17/2003

 

Travelers Ppty Casualty Corp.

 

St Paul Cos Inc.

 

16,136.1

 

15.94

 

16.03

 

(0.6

)

11/18/2001

 

Conoco Inc.

 

Phillips Petroleum Co Inc.

 

24,785.5

 

24.24

 

24.30

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

 

(18.8

)%

 

 

 

 

 

 

 

 

Low 

 

 

 

(0.3

)

 

 

 

 

 

 

 

 

Mean

 

 

 

(5.1

)

 

(1)       Source: SDC as of July 27, 2006. Represents deals wherein a target is domiciled in the US, and Transaction Value is greater than $1.0 bn

 

32


 

Comparative Case Study: Impact of Merger Speculation

Arden Realty – Announced 12/22/05

 

ARI: 9/30/05 to 12/20/05

 

RA: 7/13/06 to 7/28/06(1)

 

 

 

[CHART]

 

[CHART]

 

 

 

•                  Discount to 1 Day Prior to Announcement: (3.7%)

•                  Premium from Undisturbed Price (09/29/2005)(2): 12.0%

•                  Stock Ramp Up from 09/30/2005 to 1 Day Prior: 13.5%

 

•                  Discount to 1 Day Prior to Announcement: (2.1%)

•                  Premium from Undisturbed Price (07/12/2006)(3): 3.9%

•                  Stock Ramp Up from 7/13/2006 to 1 Day Prior: 8.9%

 

(1)       Source: Factset

(2)       Represents intraday price on 7/28/06

(3)       Based upon 9/30/05 Green Street Advisors research report released on potential Arden transaction

 

33


 

V.                                    SL Green Stock Currency Overview

 

34


 

SL Green Summary

 

SLG

•                 Strategic Rationale:  Taking SLG stock would increase RRR shareholders’ exposure to the high-demand Midtown market.

 

•                 According to Green Street Advisors, Midtown conditions are “near perfect” and are expected to be over the next 12-24 months because of “limited new construction, voracious tenant demand, and the ‘need’ for certain tenants to be located in Midtown no matter what the rent.”(2)

 

•                 Increasing exposure to Midtown Manhattan could increase tenant synergies with key RRR suburban markets

 

•                 RRR shareholders would have a meaningful ownership interest in NewCo due to SLG’s enterprise value ($8.3 bn)

 

•                 Consideration:  Increases exposure to a single office market, which could have an increased impact on RRR shareholders should Midtown office conditions deteriorate

 

•                 Trading summary:

 

•                 Currently trades at 24.7x 2006E FFO and 22.7x 2007E FFO (vs. peer group at 17.2x 2006E FFO and 16.3x 2007E FFO)(3)

 

•                 Trading at a 12.0% premium to Wall Street consensus NAV of $101.57(4)

 

•                 Wall Street analysts have a mean target share price of $116.23 with a mixture of “Buy” and “Hold” ratings

 

•                 YTD total return of 50.7%, which compares to 26.7% for RRR, 18.2% for the MSCI REIT Index and 24.7% for a index of comparable office REITs(5)

 

SL Green Geographic Concentration(1)


[CHART]


Pro Forma Geographic Concentration

[CHART]

 

(1)       Geographic Concentration by 2007E NLI. SLG per IBES Consensus, RA per Management

(2)       Green Street Research: July 26, 2006 note on SL Green

(3)       Source: Factset

(4)       Source: SNL Datasource, Factset.

(5)       Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

35


 

SLG Stock Sensitivity Analysis(1)

SL Green

 

 

 

Total Consideration per RRR Share at Closing

 

 

 

Transaction Price at Signing

 

Assumed Movement in
SLG Stock Price

 

$

43.50

 

 

 

 

 

-30.0%

 

 

$

40.02

 

-20.0%

 

 

41.18

 

-10.0%

 

 

42.34

 

0.0%

 

 

43.50

 

10.0%

 

 

44.66

 

20.0%

 

 

45.82

 

30.0%

 

 

46.98

 

 

 

 

Premium to Street Average NAV at Closing(2)

 

 

 

Transaction Price at Signing

 

Assumed Movement in
SLG Stock Price

 

$

43.50

 

 

 

 

 

 

-30.0%

 

 

1.7

%

-20.0%

 

 

4.7

%

-10.0%

 

 

7.6

%

0.0%

 

 

10.5

%

10.0%

 

 

13.5

%

20.0%

 

 

16.4

%

30.0%

 

 

19.4

%

 

(1)  Note: Assumes consideration of $1.0 bn of SLG stock and the remainder of the consideration of cash

(2)  Source: SNL Datasource and Green Street Advisors. Based upon Wall Street Equity Analyst average NAV of $39.35 per share, as of 7/28/06. Bank of America is excluded from this mean calculation due to the significant increase in Bank of America’s NAV calculation from $39.25 on 5/5/06 (per SNL Datasource) to $47.48 on 7/28/06 (per SNL Datasource), which accompanied a research piece regarding rumors of a sale of RRR

 

36


 

Annualized Total Returns(1)

RRR vs. Comparables

Periods Ending 7/28/06

 

[CHART]

 

(1)  Source: Factset. Includes reinvestment of dividends

(2)  Office REIT Index is a market-cap weighted index including AFR, BDN, BXP, CRE, CEI, CLI, EOP, MPG, SLG, TRZ, VNO

 

37


 

Summary of Research Analysts’ Ratings

SLG

 

 

 

 

 

NAV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium / (Discount) to

 

Target

 

2006E

 

2007E

 

 

 

Bank

 

Stock Rating

 

Estimate

 

NAV

 

Share Price

 

FFO

 

FFO

 

Date

 

Merrill Lynch & Co.

 

Buy

 

$

117.97

 

-3.5

%

$

125.00

 

$

4.63

 

$

5.57

 

7/25/06

 

Goldman Sachs

 

Buy

 

—

 

—

 

125.00

 

4.63

 

5.05

 

7/26/06

 

Deutsche Bank Securities

 

Hold

 

—

 

—

 

—

 

4.61

 

4.85

 

7/26/06

 

Banc of America Securities

 

Buy

 

122.28

 

-6.9

%

118.00

 

4.60

 

5.03

 

7/26/06

 

Stifel Nicolaus & Co.

 

Buy

 

110.17

 

3.3

%

123.00

 

4.60

 

5.00

 

7/26/06

 

Wachovia Securities LLC

 

Hold

 

90.84

 

25.3

%

110.00

 

4.60

 

5.02

 

7/25/06

 

Citigroup

 

Buy

 

88.65

 

28.4

%

101.00

 

4.60

 

5.00

 

7/26/06

 

UBS Securities LLC

 

Hold

 

92.73

 

22.7

%

115.00

 

4.59

 

4.98

 

7/11/06

 

A.G. Edwards Inc.

 

Hold

 

86.67

 

31.3

%

—

 

4.55

 

4.98

 

4/26/06

 

J.P. Morgan Securities Inc.

 

Buy

 

—

 

—

 

—

 

4.55

 

5.10

 

7/25/06

 

Raymond James Financial Inc.

 

Buy

 

99.35

 

14.5

%

120.00

 

4.55

 

5.03

 

7/26/06

 

RBC Capital Markets

 

Hold

 

104.00

 

9.4

%

107.00

 

4.53

 

4.89

 

7/26/06

 

Green Street Advisors

 

Hold

 

103.00

 

10.5

%

118.34

 

4.55

 

5.43

 

7/26/06

 

Average / Consensus

 

 

 

$

101.57

 

12.0

%

$

116.23

 

$

4.58

 

$

5.07

 

 

 

 

Source: As per SNL DataSource and Green Street Advisors as of July 28, 2006

 

38


 

Shareholder Information

SLG

 

Top 10 Institutional Buyers

 

Rank

 

Investor Name

 

Current Position

 

1

 

ABP Investments U.S., Inc.

 

2,466,500

 

2

 

EARNEST Partners, LLC

 

2,245,189

 

3

 

Vanguard Group, Inc.

 

2,204,438

 

4

 

Barclays Global Investors, N.A.

 

2,003,555

 

5

 

ING Clarion Real Estate Securities

 

1,861,267

 

6

 

INVESCO Capital Management Inc.

 

1,535,645

 

7

 

Davis Selected Advisers, L.P.

 

1,507,678

 

8

 

Morgan Stanley Investment Management Inc. (US)

 

1,306,317

 

9

 

Cohen & Steers Capital Management Inc.

 

1,299,976

 

10

 

Principal Global Investors (Equity)

 

1,098,592

 

 

 

Other Institutional Buyers

 

26,099,517

 

 

 

Subtotal Institutional Buyers

 

43,628,674

 

 

Top 10 Insider Holders

 

Rank

 

Insider

 

Relationship

 

Direct Holdings

 

1

 

Marc Holliday

 

Chief Executive Officer

 

443,000

 

2

 

Peck Nancy A

 

Executive Vice President

 

182,720

 

3

 

Green Stephen L

 

Chairman of the Board

 

142,965

 

4

 

Mathias Amdrew W

 

Chief Investment Officer

 

125,750

 

5

 

Nettina David J

 

Other Officer

 

57,830

 

6

 

Hughes Gregory F

 

Chief Financial Officer

 

38,012

 

7

 

Nocera Gerard T

 

Chief Operating Officer

 

28,126

 

8

 

Levine Andrew S

 

Officer

 

19,000

 

9

 

Burton Edwin Thomas III

 

Director

 

13,788

 

10

 

Feldman Benjamin P

 

Director

 

8,600

 

 

 

Other Institutional Buyers

 

—

 

3,616

 

 

 

Subtotal Insider Buyers

 

—

 

1,063,407

 

 

Individual Holders

 

 

 

 

 

 

 

 

Individual

 

 

 

Current Position

 

Subtotal Individual Holders

 

 

 

3,203,919

 

 

 

 

 

 

 

Total SLG Shares

 

 

 

47,896,000

 

 

Type of Institutional Shareholders

 

[CHART]

 

Source: Thomson One and Factset. Highlighted institutional investors represent crossover with top 10 institutional shareholders in RRR, per Thomson One

 

39


 

Board of Directors

SL Green

 

Name

 

Position

 

Biography

Stephen L Green

 

Chairman of the Board

 

Stephen L. Green has served as the Chairman of the Board of Directors, and Chief Executive Officer of the company since 1997.  Mr. Green founded S.L. Green Real Estate in 1980. Mr. Green is a Governor of the Real Estate Board of New York and an at-large member of the Executive Committee of the Board of Governors of the Real Estate Board of New York.  Green received a B.A. degree from Hartwick College and a J.D. degree from Boston College Law School

Marc Holliday

 

CEO and President

 

Mr. Holliday joined the Company in 1998 as Chief Investment Officer. In 2001 he was promoted to President, and since 1994 has also been CEO.  Holliday is a former Managing Director and Head of Direct Originations for Capital Trust (NYSE: CT) and he  received a Bachelor of Science degree in Business and Finance from Lehigh University in 1988, as well as a Master of Science Degree in Real Estate Development from Columbia University in 1990

John H. Alschuler, Jr

 

Director

 

Mr. Alschuler has served as a director since 1997 and serves as a member of the Audit, Executive and Nominating and Corporate Governance Committees.  He is also Chairman of the Compensation Committee for SL Green’s Board of Directors.  Alschuler is also the President of the consulting firm Hamilton, Rabinowitz & Alschuler Inc.

John S. Levy

 

Director

 

Mr. Levy has served as a director since 1997 and serves as a member of the Audit and Compensation Committees and as Chairman of the Nominating and Corporate Governance Committee.  He was associated with Lehman Brothers Inc. from 1983 until 1995.  There he served as Managing Director and Chief Administrative Officer of the Financial Services Division, Senior Executive Vice President and Co-Director of the International Division, and Managing Partner of the Equity Securities Division

Edwin Thomas Burton III

 

Director

 

Mr. Burton has served as a director since 1997 and serves as Chairman of the Audit Committee.  He is a member of the Compensation and Nominating and Corporate Governance Committees.  Mr. Burton is a member of, and from 1997 until March 2001 served as Chairman of the Board of Trustees of, the Investment Advisory Committee of the Virginia Retirement System for state and local employees of the Commonwealth of Virginia. From 1998 to 2004 he served as a director of Virginia National Bank and also as Senior Vice President, Managing Director and member of the Board of Directors for Interstate Johnson Lane, Inc. as well as President of Rothschild Financial Services, Inc.  Mr. Burton has also held various teaching positions at York College, Rice University and Cornell University

 

40


 

VI.           Management Participation Overview

 

41


 

Summary of Process

 

Expressions of Interest

 

Confi Signed / Received Information
Package

 

Submitted Proposal

 

 

 

 

 

Bidder A

 

Bidder A

 

SL Green

 

 

 

 

 

Bidder B

 

Bidder B

 

•      Initial bid of $42.50

 

 

 

 

 

Bidder C

 

Bidder C

 

•      Subsequent bid of $43.50

 

 

 

 

 

Bidder I

 

SL Green

 

•      27% Stock / 73% cash

 

 

 

 

 

Bidder G

 

Bidder K

 

Bidder K

 

 

 

 

 

Bidder L

 

Bidder D

 

•      $42.50 per share

 

 

 

 

 

Bidder E

 

Bidder I(1)

 

•      50% Stock / 50% cash(2)

 

 

 

 

 

SL Green

 

 

 

Bidder K (NYC & One Court)

 

 

 

 

 

Bidder F

 

 

 

•      $2.4 billion New York City

 

 

 

 

 

Bidder K

 

 

 

•      $210mm - $220mm One Court

 

 

 

 

 

Bidder D

 

 

 

 

 

(1) Received confidential information on Stanford, CT properties only

(2) Initial bid of $42.50 at 25% Cash / 75% Stock was subsequently altered to $42.50 at 50% Cash / 50% Stock

 

42


 

Management Participation Overview

 

•      During the course of the due diligence period potential bidders expressed their concern at fully valuing certain pieces of the RRR portfolio

 

•      In response, Goldman and the Company offered bidders potential acquisition options by Management for those certain assets

 

•      Management has expressed an interest in acquiring or joint venturing on the following assets:

•      Long Island:

•      Operating properties

•      Development assets

•      Long Island mezzanine notes

•      Eastridge (Westchester, NY) operating properties

•      New Jersey:

•      Operating properties

•      Development assets

•      LPT Land (25% Share)

•      Other Assets

•      Capelli Related Notes

•      RSVP Joint Venture

•      LPT Management Company

 

•      Goldman Sachs subsequently approached those parties who had participated in the process to determine if they were willing to team up with Bidder K to purchase the RRR assets excluding New York City and One Court

•      Such conversations did not yield sufficient interest or valuation levels that would create proceeds equal to or greater than $43.50 per share, when combined with the Bidder K bid for New York City and One Court

 

43


 

Management’s Valuation

RRR Net Asset Value versus Management’s Indications of Value

 

 

 

 

 

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

Purchase

 

 

 

Between

 

 

 

 

 

NAV

 

Adjusted NAV

 

Value Including

 

2007E Implied

 

Adjusted NAV

 

Deal

 

 

 

Value(1)

 

Value(1)

 

Transfer Tax(2)

 

Cap Rate(3)

 

& Purchase Value

 

Structure

 

Long Island

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Island Operating Properties

 

$

804,323,034

 

$

804,323,034

 

$

873,480,000

 

6.0

%

$

69,156,966

 

 

 

Long Island Land(4)

 

30,435,788

 

23,264,960

 

24,598,000

 

—

 

1,333,040

 

 

 

Outstanding LI notes

 

42,587,000

 

42,587,000

 

42,600,000

 

—

 

13,000

 

 

 

Total Long Island

 

$

877,345,821

 

$

870,174,993

 

$

940,678,000

 

 

 

$

70,503,007

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastridge Properties(5)

 

$

346,685,339

 

$

247,000,000

 

$

266,060,000

 

5.8

%

$

19,060,000

 

 

 

Total Eastridge

 

$

346,685,339

 

$

247,000,000

 

$

266,060,000

 

 

 

$

19,060,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey

 

 

 

 

 

 

 

 

 

 

 

 

 

New Jersey Operating Properties(6)

 

$

619,565,414

 

$

591,000,000

 

$

581,970,000

 

6.0

%

$

(9,030,000

)

 

 

New Jersey Land(7)

 

92,157,403

 

70,009,034

 

78,789,039

 

—

 

8,780,005

 

 

 

Total New Jersey

 

$

711,722,817

 

$

661,009,034

 

$

660,759,039

 

 

 

$

(249,995

)

Joint Venture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cappelli Related Notes

 

$

1,200,000

 

$

1,200,000

 

$

1,200,000

 

—

 

$

0

 

 

 

RSVP Joint Venture

 

55,197,000

 

55,197,000

 

65,000,000

 

—

 

9,803,000

 

 

 

Total Other Assets

 

$

56,397,000

 

$

56,397,000

 

$

66,200,000

 

 

 

$

9,803,000

 

Mngmt. Purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia Related Entities

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Company

 

$

11,006,352

 

$

11,006,352

 

$

22,000,000

 

—

 

$

10,993,648

 

 

 

Operating Properties (25% Interest)

 

153,391,953

 

153,391,953

 

153,175,000

 

7.1

%

(216,953

)

 

 

Total Australia

 

$

164,398,305

 

$

164,398,305

 

$

175,175,000

 

 

 

$

10,776,695

 

Mngmt. Purchase(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

2,156,549,283

 

$

1,998,979,332

 

$

2,108,872,039

 

6.1

%

$

109,892,706

 

 

 

 

44


 

Footnotes

 

(1)   NAV Value per RRR Management; Adjusted NAV Value per RRR Management

 

(2)   Purchase Value per Management and includes 40 bps of transfer tax payment of operating real estate and land assets

 

(3)   Implied Cap Rate based upon 2007E NOI, per Management

 

(4)   Per Management, delta between NAV and Adjusted NAV in Long Island Land due to original NAV valuation of land at a premium while the Adjusted NAV values such land at book

 

(5)   Per Management, NAV value for Eastridge is based upon a capped stabilized NOI number (2008, per Management) after repositioning efforts and do not reflect repositioning costs and the discounting back from the estimated period of completion.  Per Management, Adjusted NAV represents the original purchase price ($257mm) less 3 Gannett ($35mm) and the addition of 711 Westchester ($25mm)

 

(6)   Per Management, NAV value for New Jersey operating properties is based upon a capped stabilized number after repositioning efforts at 1 Giralda and does not reflect repositioning costs and the discounting back from the estimated period of completion.  Adjusted NAV reflects purchase price plus an estimated $21mm of repositioning costs (i.e., base building capex, tenant improvements & leasing commissions)

 

(7)   Per Management, delta between NAV and Adjusted NAV in New Jersey Land due to original NAV valuation of land at a premium while the Adjusted NAV values such land at book

 

(8)   SL Green expected to finance management purchase of Australian assets

 

45


 

Appendix A: Current Proposals

 

46


 

Summary of Initial Written Proposals

 

SL Green

 

Purchase Price

 

•      $43.50 per share

 

 

 

Consideration

 

•      $31.68 in cash and 0.10387 of a share of SL Green common stock for each RRR common share or RRR OP unit ($31.68 + (0.10387*$113.80))

 

•      No collar

 

 

 

OP Units

 

•      Common units converted into right to receive that amount of merger consideration as if such units were converted into common stock prior to the effective time

 

•      Preferred units to remain outstanding

 

 

 

Restricted Stock

 

•      Restrictions on vesting terminated and awards converted into the right to receive the merger consideration

 

 

 

RSUs / PIUs

 

•      Converted into right to receive that amount of merger consideration as if such units were converted into common stock prior to the effective time

 

 

 

Options

 

•      Each outstanding RRR option would be given the right to receive an amount, in cash, equal to any excess of $42.50 over the exercise price of such an option

 

 

 

Dividend

 

•      Regular quarterly dividend; no stub period dividend

 

 

 

Federal Income Tax Treatment

 

•      Taxable

 

Source: Purchase price and exchange ratio indicated verbally by Clifford Chance as of 7/230/06. Subject to revision

 

47


 

SL Green

 

 

 

Financing

 

•      Merrill Lynch has completed internal approvals to provide debt financing.  However this is not a condition to the transaction

 

•      Also anticipate repaying certain indebtedness of RRR

 

 

 

Termination Fee

 

•      3.5% plus expenses of $7 million plus documented financing fees and expenses

 

 

 

Approval

 

•      Offer approved by board

 

•      Final transaction to be approved by board

 

 

 

Other

 

•      Transaction will be subject to customary closing conditions

 

•      Do not anticipate that transaction will be subject to SL Green shareholders’ approval

 

•      Merger Agreement gives SLG the right to force unlimited number of asset sales by RRR or OP prior to the closing (as drafted, irrespective of whether the closing occurs)

 

Source: Purchase price and exchange ratio indicated verbally by Clifford Chance as of 7/30/06. Subject to revision

 

48